Wednesday, 26 September 2012

THE BALVENIE AFFAIR (Part 2)

Note: Uncle Gnarley wishes to acknowledge and thank "JM" for having written today's Post.  "JM" will also write part 3 of this Series.

JM took the bottle of Balvenie and placed it on the board room table.  He placed good catholic disbursements to each of us, as he seemed to collect the thoughts in his head. 

“Uncle Gnarley this issue is a complex one indeed.  It is difficult to argue the Premier’s position that it is prudent to invest our current oil wealth for future generations of Newfoundlanders.  It is a noble effort and I believe that the Premier is sincere when she speaks these words.  Yet, with rumor of recent cost increases, I am more troubled by this great project that they call Mush-rat Falls”.
With that JM took the first sip of the golden nectar.  Despite his preference for Rum his response confirmed that he was well accustomed to the peaty taste of the Scottish juice.  “Muskrat Falls represents one of the greatest public works projects in our province’s history, the type of project that engineers and tradespeople dream of working on.  Yet our economy is booming, labour is in short supply, and project costs are increasing due to the other resource based projects.  If you remove all the arguments about demand forecasts, and overall feasibility I just don’t know why the government is doing this project now.

“Roosevelt built the Hoover dam during the great depression.  It provided a livelihood and hope for a generation of Americans.  However, we are completing Muskrat Falls in a time which is so busy that Newfoundlanders will not be able to truly benefit from its construction, despite the fact that their tax dollars will fund it.  Why are we doing this now?”
It was clear that Uncle Gnarley was animated, and eager to long join a debate with someone near his own caliber.  But as I thought he was about to embark on one of his own lengthy discourses, he seemed to rethink.  Happy to hear more from JM he asked what, at first, seemed simple enough.  The question was not just loaded, it was lobbed, as if it was a test for JM:  “But don’t we need the power now?”

JM looked out the window as if to lament a forgotten past. “Gnarley, I have lived in all parts of this great island.  It is easy to be blinded by the prosperity in St. John’s.  But, you know the severe economic realities of the rest of the province. We have lost two paper mills in the past ten years.  The third one, in Corner Brook, is also on very shaky footing.   The load forecast provided by Nalcor can only be considered optimistic, at best.  It was derived from simple extrapolation techniques as opposed to end use modelling as recommended by Manitoba Hydro.   A recommendation by the way which Nalcor ignored”.

As an outsider to this debate, I thought that the man known only as JM had created a fatal error.  Sounding like Minister Kennedy, I blurted out, “Well what about Labrador Mining… the iron mines will use the power”.
With this both Uncle Gnarley and JM turned and provided me a look of common sympathy.  After a prolonged silence it was my wise old friend who piped, “Nav, you have just propagated one of the greatest misconceptions about Muskrat.  Selling power to Alderon may not lower the cost to you or I, in fact, it is likely to increase the rates!”

It was with that I simply set back confused about this very profound statement.  It was JM who was next to speak.
“This is the subject of Volume II of my discussion papers, Nav.  But the truth is that any power redirected to Labrador mining provides us a reason to rethink the entire Muskrat Falls Plan.  Since the beginning we have heard government’s rational for the project.  There is 20% for Nova Scotia, 40% to replace Holyrood, and 40% left for market activities such as mining.  Initially this is true but, over time, the 40% required for the island will grow.  It is this growth which will pay for the plant, and most importantly, for the transmission line”.  With this JM raised from his chair, and proceeded to the whiteboard and started to lay out some numbers.
                             

Muskrat Online            +824 MW   2017

Holyrood Closing           -466 MW    2022

Emera Delivery            -167 MW    2017 for 35 yrs

Alderon                       -100 MW    2017

Other Mining               -50 MW       Estimate

Net to NL                      41 MW   

“Nav my friend, if Minister Kennedy says that without Muskrat we will need sweaters by 2019, then even with Muskrat we will still need those very same sweaters by 2025.”

Uncle Gnarley knew the consequence of this calculation, and the cogs and wheels were turning in his very own well-oiled engine.  JM himself was also building a great head of steam.
“Gentlemen, my original recommendation to build the transmission line to Newfoundland, but to delay the generating plant was not only an opportunity for the government to save some face in light of the massive expenditures it has made.  I honestly did believe it is the right thing to do.  Although the link may be more costly than natural gas, it is a good investment for future generations of Newfoundlanders.  When the Upper Churchill contract expires, in 2041, the link will provide access to very cheap energy, to help fuel industry we will desperately need when the oil runs out.  The new revenue from Upper Churchill exports, in 2041, will allow us to build the plants then at both Muskrat and Gull Island.  When energy prices will hopefully have rebounded.”  

With this JM took a long drink, looked up at the ceiling and sighed.  “But, Uncle Gnarley, one thing is clear.  If we sell any power to Labrador mining there will be little power available for export through the Maritimes.  We need the 167 MW to make sure we don’t have to take up knitting to keep warm.  I am not sure why the government is so keen to build this dam Maritime link”.
Uncle Gnarley then asked, “JM this is powerful information.  If the mines in Labrador want the power should they not build Muskrat themselves”

“Uncle Gnarley, the mines would never build Muskrat themselves… because it is cheaper to buy the power from Hydro Quebec.  At least for now.  Unlike Nalcor, they do not have a regulated return, and the population of the province to pay for it.  They are in the business of making money”.
The night’s debate, taking a toll on both these gladiators, Uncle Gnarley asked one last question.  “JM following all of your research do you still think we should build the link to Labrador”

“Uncle Gnarley you are a wet economist.  It is the numbers that excite you.  Your modest proposal of building the link to Labrador, using recall power and then small power purchases from Hydro Quebec is certainly cheaper than Muskrat Falls.  But it is also cheaper than the isolated option.  This cannot be forgotten.  It is an investment for our children, as it will limit what they have to pay.  The link will remove oil from the mix, it will allow some more wind to be built, and it will open up other small hydro projects in Labrador.  It will help us provide power in the winter when we need it.  As a run of the river plant, this is Muskrat’s greatest weakness….
“But my original caveats stay the same.  We need to have an independent review of the demand projections, which are built from the bottom up.  If the demand projections are high, which I think they are, our rates will increase.  If the demand is as Nalcor predicts, then we will need replacement energy in the winter.  It is a formidable task. 

“We also need to see what LNG imports cost, as well as gas imports from the Grand Banks.  You see Uncle Gnarley this was Nalcor’s greatest mistake.  They put on the blinders and proceeded with Muskrat without looking at all the options.  This was outside the process defined in their very own Gated project management procedures. Now there is $400 million spent on a development and we do not even know if it is the lowest cost alternative.
One final point must be made.   We are not “pot committed”* as we need the politicians to choose the option which provides the best solution to the province.  They need to remain open minded.  I only hope they are up for the challenge”

As the night drew to a close there was a look of common desperation between the two debaters.  They both doubted the truth in JM’s last statement.  It was going to be an uneasy night of sleep and both Uncle Gnarley and JM would separately consider their next course of action.  However, I, the third wheel in this evening’s proceedings, was a little more at ease.  It was obvious that there was a willing alliance in the making.  A formidable alliance indeed!        


*“pot committed” is the act of having "put in so many chips", or otherwise risk of consequence, that you might as well follow through with the plan.(Source: Urbandictionary.com)

3 comments:

  1. How do we make more people in this province wake up and riot in the streets(figuratively)so that we can get the government's attention and have the final say on whether or not this project goes ahead.

    They have offered us a Rolls Royce but it comes with no winter tires and will have to be stored in the winter, just when we need it most.

    In my opinion, this government has lost its soul and I simply do not expect them to listen to valid objections or reason. We have let our people down by letting them get a massive majority in the HOA with only 35% of the popular vote and we are letting ourselves down by not being more vocal as a people and as a society.

    I do thank Uncle Gnarley, JM, and all of the other knowledgeable critics for their time-consuming efforts to educate the people of the province. We have more expertise on the anti side than the paid minions being used by the government but so far at least our efforts to stem the tide have been stymied.

    Once again, thanks to all of the true patriots of the province for trying to do what is right in the face of arrogance, greed, and stupidity.

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  2. This blog is truly excellent.

    Though, I think the authority of it would be much improved if this "JM" character was not anonymous.

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  3. Re JM's figures as to the governments justification of MF. He says Muskrat Online is 824 Megawatts. Yes that was what it was promoted as being. This must be Rat megawatts. Let me explain. The generators is sized to produce this when at maximum capacity. But we since learned that MF can only produce on average about 575 MW. This is because of the water flow. So it appears likely, in winter when we and Nova Scotia needs a lot of winter heat, the water flow will be insufficient to produce the maximum output , or if so , for only a short duration.So often it may only get 575MW Online. But Online means online at the Falls site. This is not delivered power. It is not power they can sell and that is useful to the consumer. JM, you need to make another adjustment to this . It's due to TRANSMISSION LOSS. Not much said on that issue. That is power lost in the system getting here . It's 10 percent- MHI makes a little comment somewhere about transmission loss. So at worst, if low water flow allows only 575 MW generated, and 10 percent loss is another 57 MW gone, that leaves only 518 useful MW , not 824.
    Now 518 minus 167 to Emera leaves only 351 MW
    That gives 3/4 of Holyrood capacity, Not enough to fully shut down Holyrood, and none for Alderon, other mining, or Net to NFLD. Transmission loss is largely proportional to the distance. It's about 10 percent loss coming to St. John's. Close to 15 percent getting yo Emera, so likey greater than the 57 MW figure I showed, which would apply if all the power was used for St John's area. This is just a 'detail' Nalcor would rather keep quiet about. Of course transmission loss for on island generation is about half that of Labrador power. And when efficient heating systems are used by the consumer , there is zero transmission loss. Actually, less than zero: the reduced consumption by the consumer actually adds to the grid capacity by a few precent for power needed elsewhere. But why let 'details' get in the way of a good story that Nalcor and the government promotes, about this low cost power! If details were relevant, I guess this mess would be properly assessed by the PUB. Instead we'll get lots of rhetorical trash, and some fine entertainment in the House of Assembly. Hope someone asks them to explain the TRANSMISSION LOSS issue. And then what cost allowance have Nalcor made for the GIC problem? Cost Hydro Quebec 1 billion dollars after the 1989 blackout. Just another detail of course. Pesky details. Better not to hear this stuff! Winston Adams

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